LIVING WITH THE SQUEEZE

PROCUREMENT, LEAN, SHARED SERVICES, OUTSOURCING

Colin CramMarc1 Ltdcolin.cram@marc1ltd.comTel: 01457 868107Mobile: 075251 49611www.marc1ltd.com

THE EXTENT OF THE SQUEEZE £Bn £Bn

Total Public Sector Expenditure 660State Pensions 117Benefits/Welfare 109Healthcare 119Interest on Government Debt 31Sub Total 376

‘What’s Left’ 284Forecast Reduction in Budget Deficit 70

THE EXTENT OF THE SQUEEZE

• The £280bn ‘what’s left’ expenditure includes areas where cuts are likely to be less than 25%

Spend Cuts £Bn £Bn• Defence: 44 5• Protection:(Police, Fire, Prisons, Courts) 17 2• Education: 86 9

• Total 147 16

• What’s left? 133 54

So Disproportionate Cuts likely for all remaining activities.

£Bn £BnSavings from the most difficult areas(Welfare, State Pensions, Benefits, National Debt Interest) 8Savings from Defence, Education, Protection 16 VAT Increase to 20% (revenue increase) 11.5Sub Total 35.5

Savings to be found from remaining spend of £133bn: 34.5i.e. 26% cuts.

BALANCING THE BOOKS: A POSSIBLE SCENARIO

Cutting FunctionsGreater Efficiency/Doing Things DifferentlyImproving ProcurementIncreasing Revenue (particularly for Local Government)

SOURCE OF REMAINING £34.5BN ‘SAVINGS’

‘No sane person imagines that by doing something the way they have always done it will deliver a different result’

‘It is not necessary to change: Survival is not mandatory’Deming: 1900-1993

√ Procurement√ Shared Services and Outsourcing√ Lean• Use of IT• Estates Rationalisation

TAKING OUT COST

DOES PUBLIC SECTOR PROCUREMENT MATTER?

• £200 Bn pa

• 30% of Public Sector Costs

• £3,000 per Adult and Child pa

• £250,000 per person into the ‘Public Sector Purchasing Pot’ over a lifetime

• £1Bn Saving can save 30,000 front line jobs

Parking/Traffic Management Procurement: Approx £1.5-2Bn pa

© C M Cram

WAYS TO MAKE PROCUREMENT SAVINGS?

Traffic Management Procurement: Approx £1.5-2Bn pa

• What are the Best Areas to Tackle?• What Ways are there to Make Procurement Savings?

• Re-negotiate• Benchmark• Reduce Costs of Duplication• Harmonise – procedures and specifications• Enhance Power e.g. through aggregation• Commitment• Place Based Procurement• Benchmark• Restructure

WAYS TO MAKE PROCUREMENT SAVINGS

BENCHMARKING

What Areas Would be Suitable for Benchmarking?

What Measures Might One Use?

How Should the Sector Proceed?

Any Offers to Take the Lead?

1% Savings Overall - do the same, but better3% Savings Overall - Do the same, but much

better5% Savings Overall - Some re-structuring,

bringing in new expertise7% Savings Overall – Fundamental Change and Re-structuring

PROCUREMENT SAVINGS

PUBLIC SECTOR ORGANISATIONS CREATE UNNECESSARY COSTS FOR SUPPLIERS

• Indiscipline

• Different Procedures/Contract Ts and Cs

• Complexity – e.g. Tender Procedures

• Multiplicity of Tenders

• Multiplicity of ‘Duplicate’ Contracts and Contract Managers

• Inconsistency

• Specifications

• Very Varied Capability

© C M Cram

Specifications:• Tarmac• IT • Finance Systems• Outsourcings• Street Lighting• Construction• Waste Disposal• Research Equipment• Commodities Goods and Services

How Consistent are Specifications for Parking Related Procurement?

Who has the Best Specifications?

PUBLIC SECTOR ORGANISATIONS CREATE UNNECESSARY COSTS FOR SUPPLIERS

• Increased Leverage• Better Quality Contracts• Expertise Available to All• Commodity Market Knowledge Available to All• Better/More Consistent Policy Implementation• Consistent Specifications• Opportunities to Use More Advanced Purchasing

Techniques- Relationship Management- Supply Chain Management- Value Analysis

PROCUREMENT/THIRD PARTY SPEND: Savings/Benefits through

• Right Procurement Structures

• Information

• Common Information/IT Systems

• Discipline

• Expertise

UNDERPINNED BY

POSSIBLE PROCUREMENT STRUCTURES

1. Each Organisation Acts Independently2. Benchmarking3. Collaboration4. Joint Local5. Joint Regional6. Sector Procurement7. National Procurement

MODEL EVALUATIONHow Should the Sector Proceed?

Collaborative Model/ Objectives

Ind B/Mark Collab Joint Loca

l

Joint Region

Sector National

Leverage

Negotiation

Market Management

Common Procedures

Consistent Legal Interp

Consistent Specs

Fewer Tenders

Expertise

Service

Localism

TOTAL

© C M Cram

SO WHAT IS THE COST OF POOR PRACTICE /MISSED OPPORTUNITY?

Furniture 30%FM/Outsourcing/Major Contracts Up to 35%Laboratory Consumables Up to 90%IT 5 – 80%Construction 5 – 25%Excellent Construction Management 5 – 15%Social Care 10%Legal Services 10%Good Contracts Management 5 – 35%

What Might Be the Potential for Parking/Traffic Management?

© C M Cram

INDEPENDENCE

COLLABORATION

INTEGRATION

© C M Cram

PUBLIC SECTOR PROCUREMENT: THE FUTURE?

• Customs and Excise Pay Branch• Ministry of Defence Stores• Meteorological Office Procurement• Stationery Procurement• NHS• Revenue and Customs – PaceSetter

6 Sigma: Reduce Variations within ProcessesLean: Smooth Flow in these Processes

WHAT IS ‘LEAN’?

• Understand How One’s Services add Value to Customers• Optimise the Value Adding Elements of Services and

Eliminate Waste• Deliver Right Services, Right First Time• Empower Staff• Involve Staff

Performance, People, Resource Planning, Skills Planning, Continuous Improvement

ELEMENTS OF LEAN

• Leadership – totally dedicated• Genuine Endorsement from the Top• Identify Teams of People willing to give it a try• Early Small Pilots – deliver Quick Wins• Involvement and Ownership by the Staff

CRITICAL SUCCESS FACTORS

• Decide Outcome required and How its Achievement can be Measured

• Examine end to end Process. How far does it deliver the desired outcome?

• Examine and Map individual Processes • Evaluate how essential each Process is to achieving the

desired Outcome• How much time does each Process take. What is its added

Value?• Re-design individual and End to End Process to Deliver

Required Outcomes• Introduce any Technology with Caution. No Point in Automating

the Wrong Thing

WHO ARE THE BEST PEOPLE TO DO THIS? THE STAFF

GETTING IT RIGHT

Technical Change Can HelpBUT Lean is a Cultural Change. It is not One-Off

WHAT ARE THE OPPORTUNITIES FOR LEAN?

• Eliminate Duplication• Reduced Costs/Economies of Scale

• Staffing• Buildings/Construction

• Access to Expertise/Higher Standards for All?• Savings in: Staffing, Buildings/Construction, Energy, Running Costs,

Equipment, Processing Costs, IT, Licenses, Procurement

• Greater Opportunities to Generate Income• Public Sector Organisations with Lower Activity Levels have

Higher Costs

SHARED SERVICES?

£0

£10

£20

£30

£40

£50

£60

£70

Hlt

on

Traff

ord

Wir

ral

Tam

esi

de

Salford

Barr

ow

-in

-Furn

ess

Ross

en

dale

Bolt

on

Hyn

db

urn

Cong

leto

n

Sto

ckport

Fyld

e

Pre

ston

Warr

ing

ton

Bla

ckb

urn

South

Rib

ble

Bu

ry

Old

ham

Bu

rnle

y

Roch

dale

Bla

ckp

ool

St

Hele

ns

Seft

on

Lan

cast

er

Elle

smere

Port

Wig

an

Pen

dle

Eden

Cre

we

Carl

isle

Cit

y

Vale

Royal

Wyre

Rib

ble

Valle

y

Copela

nd

Ch

orl

ey

Alle

rdale

Liverp

ool

Ch

est

er

Cit

y

Kn

ow

sley

Macc

lesfi

eld

West

Lan

cash

ire

Man

chest

er

South

Lake

land

COST OF WASTE COLLECTION PER HOUSEHOLD IN NW: 2005-6

• Benchmarking

• Copying Better Practice

• Collaboration/Consortia

• Joint Service Delivery

• Service Centres

• Outsourcing to a Common Provider

NOT A MAGIC FORMULA

SHARED SERVICES?

• Within Sector (e.g. Local Government)• Between Sectors• National, Regional, Local

Does Split between NHS, Local Government and HE Make Sense?

SHARED SERVICES CAN BE

SHARED SERVICES

• Be Realistic about the Potential Benefits• Be Realistic about what can be Achieved• A lot of it about• Don’t Expect Accolades!• Be Realistic about Obstacles

• Least Controversial• Quicker• Less Costly• Quick Potential for Benefits Realisation• Reasonable Chance Of Success

But, often resistance to change

• What Could be Benchmarked in Parking? • With Whom?• How Should the Sector Proceed?

BENCHMARKING/COPYING BETTER PRACTICE

BENEFITS through• Aggregation• Commonality of Specifications• Commonality of Procedures• Doing Things Once

BUT• Often Difficult to Agree• Time Consuming - the Effort can be Expensive• Day Job Takes Precedence

COLLABORATION

SHARED SERVICE/JOINT SERVICE DELIVERY

• Controversial• Long Timescale – but not necessarily• Can be Complex• Can be Expensive• Higher Risks To Service• Higher Risk Of Non-completion• EU Procurement Directives

BUT: LONG TERM BENEFITS MAY JUSTIFY IT

IT 5 – 80%Construction 5 – 25%Excellent Construction Management 5 – 15%Social Care (children’s) 5%Legal Services 10%Revs and Bens 15%Procurement Costs 20 -50%Procurement Spend 20%Transport 10%

BUT: Outsourcing Companies Often Take Out 30-40%

SO WHAT CAN BE THE BENEFIT OF SHARED SERVICES?

• Identifies and Highlights Costs of Current Activities• Often the Catalyst to Introduce Major Change• Defined Service Levels• Service Level Agreements• Performance Measures• Accountability

However, there will be some management and change costs, so total cost of joint service organisation must be less than 95% of what it replaces.

JOINT SERVICE DELIVERY

Cost of waste collection per household in NW 2005-6

£0

£10

£20

£30

£40

£50

£60

£70

Hlt

on

Traff

ord

Wir

ral

Tam

esi

de

Salford

Barr

ow

-in

-Furn

ess

Ross

en

dale

Bolt

on

Hyn

db

urn

Cong

leto

n

Sto

ckport

Fyld

e

Pre

ston

Warr

ing

ton

Bla

ckb

urn

South

Rib

ble

Bu

ry

Old

ham

Bu

rnle

y

Roch

dale

Bla

ckp

ool

St

Hele

ns

Seft

on

Lan

cast

er

Elle

smere

Port

Wig

an

Pen

dle

Eden

Cre

we

Carl

isle

Cit

y

Vale

Royal

Wyre

Rib

ble

Valle

y

Copela

nd

Ch

orl

ey

Alle

rdale

Liverp

ool

Ch

est

er

Cit

y

Kn

ow

sley

Macc

lesfi

eld

West

Lan

cash

ire

Man

chest

er

South

Lake

land

Reduced Costs Through• Efficient Use of Depots• Efficient Use of Vehicles• Greater Purchasing Power for Equipment• Reduced Management Costs• Management by Best Managers?• Single Method of Collection and Sorting

Overall Savings 10%+

WASTE COLLECTIONShared Service

• The Transfer of Part or Whole of an Existing In-house Activity to a Third Party.

• This May Include the Related Human Resources and/or Assets

• More complex to implement than Shared Services, but often easier ‘politically’ to decide

OUTSOURCING: PRACTICAL DEFINITION

1. Must Know Existing Costs

2. Must Know Costs to Outsource e.g.• Switching Cost 5%• Management Cost 5%• Gross Profit 10 -15%

To Deliver a Better Cost Base to theCustomer, the Outsourcer’s Cost Base Must be only 75 - 80% of Current Operations. It is often

only 60%.

INVESTMENT APPRAISAL - COSTS

Strategic

Organisational

Fashion / Emotion

It’s A Mess – Give It To Someone Else To Do It

Financial / Survival

Only Way to Secure Sufficient Change

Bury The Past

Access The Future

WHY OUTSOURCE?

• Focus On Core Strategic Activities• Gain Competitive Advantage• Increase Flexibility• Access To Expertise• Acquire Innovative Ideas• Develop Strategic Partnership• Enable Major Organisational Changes• Insurance Against Market Conditions• Job Creation/Regeneration

STRATEGIC

• Consistent With Business Strategy

• Financial Appraisal: - Clear View Of Existing Costs - Need Understanding Of Supply Costs

• Option Appraisal - Risk Analysis - Benefits

SHARED SERVICES OR OUTSOURCE?A STRUCTURED WAY TO MAKE THE

RIGHT DECISION

BENEFITS ASSESSMENT MODEL

LEAN B/MARK JOINT OUTSOURCE

SAVINGS

SERVICE

ACCOUNTABILITY

ACCESS TO EXPERTISE

INNOVATION

INCOME

JOB CREATION

INWARDINVESTMENT

TOTAL © Marc1 Ltd

ISSUES AND RISKS

LEAN B/MARK JOINT OUT-SOURCE

COSTS

TIME

RESISTANCE TO CHANGE

CONTRACTING CAPABILITY

COMPLEXITY

TECHNICAL

SLOWER PROGRESS

SECURITY

TOTAL © Marc1 Ltd

DEVELOP STRATEGIC PLAN

MISSION

BUSINESS OBJECTIVES POLITICAL OBJECTIVES

OUTLINE BUSINESS CASEPOTENTIAL INITIATIVES, OPTION ASSESSMENT

MARKET ANALYSISENABLERS, INFRASTRUCTURES, RESOURCES

TIMESCALES

VISION

© Marc1 Ltd

STRATEGY

• Plan Long Term Strategy and Programme

• Get “Quick Wins” through Process Improvement, Benchmarking and Copying Better Practice

BUT DON’T LET THE BEST GET IN THE WAY OF THE GOOD

Colin M CramMarc1 LtdTel: 01457 868107Mob: 075251 49611Email: colin.cram@marc1ltd.comwww.marc1ltd.com

THANK YOU!

GOVERNMENT PROCUREMENT IN 5 YEARS TIME?

Central/ Major Departments/Buying Solutions

Industry Specific

Regional P S Hubs/Medium Depts

Local/Med/Small Departments

Major National Contracts/Suppliers

* *

Common Categories * *Relationship Management * *Market Management * *Industry Specific * *PPIs/Major Project Support * * *

Regional/Large Local Contracts/Suppliers

*

Small Local Contracts * *Discipline/Implementation/Compliance

* * © C M Cram

SECURITY EVALUATON(Service e.g. Revs/Bens)

OUTSOURCING ABROAD

OUTSOURCINGUK

SHARED SERVICE

KEEP IN-HOUSE

DATA SECURITY

SUPPLY CHAIN LENGTH

QUALITY

CURRENCY

TOTAL

© Marc1 Ltd